Fiscal cliff: U.S. will tumble despite Senate efforts

A man walks past the U.S. Capitol Building in Washington December 17, 2012. The first real movement in the "fiscal cliff" talks began on Sunday, with Republican House Speaker John Boehner edging slightly closer to President Barack Obama's key demands as they try to avert the steep tax hikes and spending cuts set to take effect unless Congress intervenes by December 31. REUTERS/Joshua Roberts (UNITED STATES - Tags: POLITICS BUSINESS TPX IMAGES OF THE DAY)

WASHINGTON (Reuters) – The United States looked on track to tumble over the “fiscal cliff” at midnight on Monday, at least for a day, as lawmakers remained reluctant to back last-minute efforts by Senate leaders to avert severe tax increases and spending cuts.

The U.S. House of Representatives might not vote on any “fiscal cliff” plan before midnight, possibly pushing a legislative decision into New Year’s Day, when financial markets will be closed, said a Republican aide.

The Senate plan was heavy on tax increases and light on spending cuts, raising concerns that it would repel rank-and-file lawmakers, particularly in the Republican-controlled House.

As Senate Republican leader Mitch McConnell and Vice President Joe Biden kept working on unresolved parts of the deal, there was deep discontent among Senate Democrats.

“The caucus as a whole is not sold” on the proposal, said a Senate Democratic aide. “We just don’t have the votes for it.”

If Congress fails to act, about $600 billion in tax increases and government-wide spending cuts will begin taking effect after midnight, harsh measures that could push the U.S. economy into recession.

But lawmakers could still vote for any deal on New Year’s Day and prevent the worst of the fiscal cliff effect.

Under the Senate plan, those with household income above $450,000 or individual income above $400,000 would be taxed at 39.6 percent, up from 35 percent. Those with lower income would be taxed at the current, reduced tax rates put in place under former President George W. Bush.

The aide said Democrats did not like the $450,000 threshold for raising taxes on the rich – they wanted $250,000 – or the higher threshold for raising estate taxes. Democrats also are upset that there is no agreement yet to put off the first round of $1.2 trillion in automatic spending cuts.

Republicans already are pushing for switching those across-the-board cuts to savings in Medicare and Social Security and threatening to block a debt limit increase in February unless they get their way. But that is a fight that would most likely play out in January and February.

A group of liberal senators met with Senate Majority Leader Harry Reid to register anger with the deal being negotiated by Biden, and some aides were dispirited that the vice president, a fellow Democrat, had gone further than they wanted, just as he did in December 2010 when all Bush tax cuts were extended for two years.

Shortly after the plan emerged, President Barack Obama said agreement was within sight, but he sounded a cautious note.

“There are still issues to resolve, but we’re hopeful that Congress can get it done, but it’s not done,” Obama, a Democrat, said at a White House event.

U.S. stocks rose on the day, with the market closing before the latest news broke about the House not voting. The benchmark Dow Jones industrial average closed up 1.3 percent at 13,104.